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CEDIA Marketers Seek Long-Term Growth

— The custom industry is bracing for a slow
climb out of a long slump as it heads into this month’s CEDIA
Expo, where show management and exhibitors hope to
arm electronic systems contractors (ESCs) with new business
strategies and new products to rebuild an industry
whose growth drivers — new-home construction and home
remodeling — remain weak.

During the Sept. 22-26 show, CEDIA will unveil its first
New Technology Pavilion to highlight profit opportunities
in such areas as energy management, home
health monitoring, and residential communication,
including telepresence, or high-resolution
home video conferencing on a big-screen TV.
A Home Health Technology Pavilion will give
installers hands-on experience with technologies said to
enable consumers to “age in place.”

CEDIA also plans panel discussions on the opportunities
promoted in its new technology pavilion.

All told, CEDIA expects 450 exhibitors occupying 383
booths to turn up at this year’s Expo, compared with 2009’s
426 exhibitors in 384 booths and 2008’s more than 500
exhibitors. CEDIA said it is hopeful this year’s attendance
will remain at 2009’s level of more than 20,000. In 2007,
attendance was 29,000.

Though attendance has fallen in recent years, marketers
believe the industry has likely bottomed out. From January
through July, single-family housing starts grew 18.4
percent to 297,600 units, and the National Association of
Home Builders (NAHB) forecasts a 45.1 percent gain in
2011 and 39 percent in 2012.

Though new-home starts are rising, the NAHB forecasts put
2012 starts at only 1.015 million, far below the housing industry’s
peak year of 2005 with 1.71 million single-family starts.

To cope with diminished expectations that the housing
industry will return to its peak anytime soon, many installers
have retooled their marketing strategies to go after retrofit
installations in existing home, but the strategy can go
only so far, said Jim Annes, VP/GM of national distributor
AVAD. “It’s not reasonable to expect the market to grow faster than GDP,” he told TWICE, because today,
consumer expenditures for retrofit installs are coming
from discretionary income. In contrast, the custom
market had previously been driven by accelerating
new-home construction and major home remodeling
projects, which depended largely on consumers qualifying
for second mortgages and home-equity loans
based on rising home values, he explained.

Annes forecasts single-digit growth in the residential
custom industry as long as the country doesn’t run into
any more “significant macro-economic problems.”

Last year “was painful,” he said, but the industry
has been left with “the strongest players”
among ESCs.

The most successful of these players
are targeting the retrofit market, and
many have diversified into light- and
medium-commercial installation as well as networking
and security, Annes said. More are also tackling
energy-management jobs, ranging from automatic
motorized shades, light-control systems and remote
monitoring of lights.

Like Annes, Progressive Retailers Organization
(PRO Group) Dave Workman, executive director/
COO, has also seen signs of life, calling 2009 “really
brutal” in the custom industry but exhibiting “a bit
of an uptick” in 2010, mainly in “reachable” $20,000-
$50,000 installations as the number of installs above
$100,000 fell. Many installers, Workman and others
noted, are doing more installations this year but at
lower price points than a couple of years ago. Workman
cited the economy’s impact on consumer
spending as well as the declining
price of technology in general.

CEDIA CEO Utz Baldwin also sees
other factors driving down system pricing.
He cited anecdotal evidence that installers are doing
more work but generating the same amount of income
in part because of increased competition, which could
be caused by a number of factors. One is that installers
are bidding on jobs they would have previously passed
by. Another is the entry of electrical and security contractors
into audio/video installation, and another is that
installation companies that were shut down spawned
new companies headed by former employees.

Whatever their numbers, installers have to change
the way they go to market, relying less on networking
with the builders, architects and interior designers
who could provide opportunities to install systems
in new homes under construction and in major home
renovations, said Jeff Kussard, strategic development
director of distributor Capitol Sales.

Some dealers are also changing by diversifying into
commercial installs, energy management, wireless
lighting systems for retrofit installation, and installation
of other retrofit systems. “Survey responses from
our members clearly indicate a shift to retrofit,” added
CEDIA’s Baldwin.

At least one marketer, however, believes installers
should broaden their retrofit focus to include no-newwires
technologies, but by and large, few are doing
so, said Capitol’s Kussard. “For installers, retrofit
typically means punching holes in walls, pulling wires,
and patching holes,” he said. “It takes a very strongwilled
consumer to subject themselves to that type of
project, so the sales opportunity is very small.” With a
no-new-wires approach, you can complete the same
project in hours or days versus weeks or months.”

Kussard pointed in part to “all kinds of homes” with
redundant CAT-5 and coax wiring installed in new
homes during the boom years to future-proof an install.
“Manufacturers see this as a huge opportunity,
but the dealer community hasn’t yet, maybe because
no-new-wires technology wasn’t reliable in years past
or because there is a fear to embracing this change.”

“We made a living off 1 percent of the market for the
past 20 years,” Kussard said, citing Census Bureau
and market statistics showing that during the housing
boom’s peak years, new homes accounted for only as
much as 5 percent of total households and that home
technology penetrated only 20 percent of new homes.

Should dealers not embrace the no-new-wires concept,
other marketers still see upside potential in the longer
term. “Innovation and technology will help in the recovery,” CEDIA’s
Baldwin said. “Consumers want technology,” and many
home technologies “are moving into the mass market,” he said.

Even in the short term, “homeowners are spending money,
but they are smarter about it,” Baldwin said. “They might
not put in a pool, but to keep teens at home, they’ll install
home entertainment.”

PRO Group’s Workman sees future potential for installers
to team with utilities that are building smart energy
grids. Installers could integrate Control4-type home-control
systems with a utility’s smart meter, enabling utilities to control
a home’s electricity consumption.

Installers, however, must not only offer new types of products
to prosper in the future, they must also shift stances as
technology drives down product prices to become valueadded
resellers who offer “value in a solution, not a box,”
Baldwin noted.